On November 13, 2018, the Centers for Medicare and Medicaid Services (CMS) released a letter to State Medicaid directors outlining a wide range of opportunities for states to design innovative delivery systems for adults and children with serious mental health conditions.

The CMS letter offers guidance on strategies to improve care for such individuals using Medicaid State plan provisions, managed care contracts, health homes, and demonstration waivers. Additionally, it examines current research on the importance of early identification in schools of children and adolescents who are at risk of developing mental health conditions and the need for effective strategies to engage such individuals in appropriate treatment as soon as possible.

Existing Authority

The letter outlines the potential benefits of innovative services that can be covered via the State Medicaid plan and managed care capitation rates, such as crisis stabilization and peer supports. The letter also notes that key activities such as behavioral health outreach usually cannot be covered directly as a Medicaid State plan service, but that the cost of such activities can be included in calculating Medicaid administration costs and in Medicaid provider rate setting for other Medicaid covered services.

Section 1115 Medicaid Waiver Initiative

Lastly, the letter details a new initiative to expand coverage of needed behavioral health services via Section 1115 Medicaid Waivers. States can receive Federal Medicaid matching funds for services delivered to Medicaid beneficiaries during short-term stays in psychiatric hospitals or residential treatment settings that qualify as Institutions for Mental Diseases (IMDs). This initiative is subject to specific exclusions, which the letter outlines—for instance, it does not apply to nursing homes that qualify as IMDs. Covered services include those for treatment of mental health and for co-occurring conditions. Payments can only be made for room and board if the facilities qualify under section 1905(a) of the Social Security Act.

While states may design their demonstrations, the letter outlines the goals, milestones, and process requirements that states must aim to address. To qualify, states must take action through the demonstration to ensure high quality of care in IMDs, as well as access to community-based services, as outlined in the letter. States will be expected to achieve a statewide average length of stay of 30 days. As with all Section 1115 Waivers, the demonstration must be budget neutral to the Federal government.